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Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 1
"Berkshire Hathaway (-12.2%) has underperformed the S&P 500 (+10.7%) by 22.9 percentage points since May 3 when Warren Buffett announced he would be stepping down as CEO on December 31. Since Berkshire's market value on May 3 was $1.2 trillion, the "Buffett premium" can be estimated as 22.9% x $1.2 trillion = $275 billion.
(Note: This is only an approximate estimation. There are other factors that may have contributed to Berkshire's substantial underperformance since May 3, including a decline in first quarter operating earnings that was also reported on that day. However, prior to May 3, Berkshire had been outperforming the S&P 500 in 2025 by 22 percentage points. The fact that May 3 served as an inflection point, resulting in an abrupt and substantial reversal of relative performance, seems to lead to a reasonable conclusion that the bulk (if not all) of this decline can be attributed to Warren Buffett's surprise announcement.)"
Hard to objectively refute this...
https://x.com/DrDavidKass/status/19463798736325757...
No. of Recommendations: 16
Hard to objectively refute this...
Mean reversion of P/B. That wasn't hard.
No. of Recommendations: 2
Since Berkshire's market value on May 3 was $1.2 trillion, the "Buffett premium" can be estimated as 22.9% x $1.2 trillion = $275 billion.
So he knows for a fact that the current state of divergence, those 22%, is the final state? Does he teach his precognition skills? 😂
No. of Recommendations: 1
"Mean reversion of P/B. That wasn't hard."
but beyond first order thinking, the timing of his retirement was the catalyst. imo
opinions can differ.
No. of Recommendations: 2
Mean reversion of P/B. That wasn't hard.
Mean reversion of price to intrinsic value.
No. of Recommendations: 13
The reason for the stock decline is due to 2 significant fundamental developments.
Both negatives.
Both on Warren’s watch while fully in charge:
1.) Buffett essentially told us the value of our extremely important Utilities/Energy segment had declined materially. He payed LESS to buy back a minority share of it than he did previously. Why? “It’s worth less”.
2.) Operating earnings came in light, even after accounting for currency swings which adversely impacted results.
If Buffett were 20 years younger, the stock 100% would have sold off on Fundamentals disclosed that weekend.
Now layer on top of this: the stock kept rising pre May as investors embraced both risk-off with political uncertainty combined with momentum buying of a “hot” stock. The stock got expensive. Stock buying fed upon itself.
And now that dynamic completely reverses itself— with Risk ON (AI/Tech) and hot momentum money selling as the stock declines. And selling that feeds on itself.
What matters is what’s at the root of all this: Fundamental negative company news—both the CEOs explicit downgrade of a significant segment’s value AND weak earnings.
I think the Buffett-to-Chairman Only 1/1/2026 news only factors in maybe last $10 or so decline where weak/dumb money thinks “see the market’s worried about Buffett!”.
So maybe we’re right back to where we should be valuation wise? Don’t know. I do feel very strongly that IF we’re at or near fair value—Warren is very happy!
A.) Warren has said ideally he’d like the stock to trade AT fair value with owners enjoying exactly the same ride during their ownership period…doesn’t like overvaluation or undervaluation over long term…
And
B.) Starting Points Matter! The worst thing for Greg to inherit is a high stock price. He’ll be judged by a starting date of 1/1/2026. The last thing in the world Warren wants Greg to inherit is an overpriced stock on day 1. It’s not fair to Greg.
No. of Recommendations: 3
What matters is what’s at the root of all this: Fundamental negative company news—both the CEOs explicit downgrade of a significant segment’s value AND weak earnings.
Another negative is that with the problems at BHE, it is not clear how effectively the earnings can be retained & reinvested going forward because one can only presume that there would be fewer opportunities at least in the near term at BHE.
No. of Recommendations: 0
"A.) Warren has said ideally he’d like the stock to trade AT fair value with owners enjoying exactly the same ride during their ownership period…doesn’t like overvaluation or undervaluation over long term…
And
B.) Starting Points Matter! The worst thing for Greg to inherit is a high stock price. He’ll be judged by a starting date of 1/1/2026. The last thing in the world Warren wants Greg to inherit is an overpriced stock on day 1. It’s not fair to Greg."
Forget what he says, watch what he does. IF he wanted to keep brk from running he would have expedited his gifting so that the foundations could sell 5-10 billion in the 520 ish range and prevented the move to 530 plus.
No. of Recommendations: 10
Thanks LongTermBRK for injecting logic into this thread.
A downgrade of BHE's value, poor operating earnings, and a reverse of momentum investing as Risk On became Risk Off are the real reasons for the reversal of BRK stock price versus the index. How Kass was/is ever viewed as a knowledgeable analyst for BRK is beyond me. More a headline seeker. Not at the Pabrai/Tilson level, but same ballpark.
I also think Munger Disciple is on the right track in that perhaps the market is better realizing that reinvestment of BRK's cash, and cash flow, is an ongoing fundamental issue. But I don't think it's tied to BHE in the base case. BHE is, and has been, self-funding via retained earnings and borrowing/debt. That makes sense in their regulated environment. Only if BHE needed large sums from BRK for acquisitions might BRK be a factor. Growth by acquisition hasn't been BRK's game plan so far. Or possibly an explosive growth in electricity demand beyond BHE's ability to self finance. That remains to develop. Who is looking that far ahead in today's unsettled, Trump driven, world?
Buffett taking steps to manage BRK's stock price is unlikely. I agree he probably does view that a fair price at the time Greg actually takes command is desirable - but not to the point of intervention.
I think we BRK observers may be looking for a simple explanation of a more complex situation.
No. of Recommendations: 2
“I think we BRK observers may be looking for a simple explanation of a more complex situation”
—————————————
Or as the quote by H.L.Mencken goes,
“For every complex problem there is an answer that is clear, simple and wrong.”
ciao
No. of Recommendations: 0
That remains to develop. Who is looking that far ahead in today's unsettled, Trump driven, world?
What could be some opportunities for BHE in a more non-regulated environment? Thanks
No. of Recommendations: 7
Forget what he says, watch what he does. IF he wanted to keep brk from running he would have expedited his gifting so that the foundations could sell 5-10 billion in the 520 ish range and prevented the move to 530 plus.
We keep telling you but you refuse to believe it. Buffett does not manipulate Berkshire’s stock price. Ever. But he does communicate in a way that encourages and enables reasonably accurate calculations of intrinsic value, in the hope that price will not stray too far from value.
No. of Recommendations: 1
<<Thanks LongTermBRK for injecting logic into this…… How Kass was/is ever viewed as a knowledgeable analyst for BRK is beyond me. More a headline seeker. Not at the Pabrai/Tilson level, but same ballpark>>>
You’re welcome Tex. Funny you mentioned Whitney T. Remember he was with us and very active on the old AOL Board? Smart guy who probably wishes he never discovered short selling. Now it’s almost embarrassing to watch his infomercials hawking “a free stock tip sure to make new fortunes”. It’s really sad because both then and now he’s had a good grasp on Berkshire Imo. And Kass? Just an attention seeking loudmouth.
No. of Recommendations: 0
Personally, given that Buffett is standing down, there's lots of cash earning low returns,it's an inflationary environment and lots of macro economic uncertainty and headwinds with the busineses. Why would I expect Berkshire to trade higher than average PB?
I expect a slow grind down to 1.35x book value. If there's a market meltdown Berkshire will get battered too and that'll be a good time to buy as they can deploy the cash,
It doesn't make sense to me that it should trade at higher than average multiples because of the optionality of the cash pile. The price is not that forward looking imo.
No. of Recommendations: 0
All you say was true too when Berkshire traded far higher --- nevertheless it did trade far higher. So what for you (or us) makes sense is irrelevant, at least short-term. Momentum - in whatever direction - is not about rationality, it's about emotions. Therefore re your "I expect a slow grind down to 1.35x book value" I wouldn´t be surprised if at some point it would be clearly lower than that.
